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(Bloomberg) — Stocks were poised for their biggest rally in three months as the trading frenzy that fueled a surge in heavily shorted shares continued to ease. Investors also sifted through a batch of corporate earnings ahead of results from giants Amazon.com Inc. and Alphabet Inc.

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All major groups in the S&P 500 advanced, with financial and retail companies leading gains on Tuesday, while the Dow Jones Industrial Average climbed about 2%. United Parcel Service Inc. rose as the courier reported a surge in profit, and Exxon Mobil Corp. jumped on a pledge to safeguard dividends following its first annual loss in at least 40 years. Meanwhile, the speculative trades popular with Reddit crowds crumbled, with GameStop Corp. and AMC Entertainment Holdings Inc. tumbling at least 41% as silver sank from an eight-year high.

The collapse of those trades that roiled the stock market last month has coincided with a sharp reduction in short interest after bearish investors appeared to cover their positions. GameStop’s value, for example, has dwindled by more than $28 billion to $5.8 billion from a Thursday peak. While some indicators show the battle between Redditors and hedge funds may not be over, analysts cited the sense of more stability and diminished concern over contagion from any retail bubble as reasons for the equity rebound.

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“There’s optimism brewing underneath,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors. “The fact that markets have cooled down a bit with the retail-trading frenzy, that’s giving a little bit of optimism. Anytime there’s more stability to markets, there’s a breath of relief of all investors.”

She also cited prospects for more fiscal stimulus as another reason for the positive mood. The Senate on Tuesday will begin a process that would let Democrats pass President Joe Biden’s $1.9 trillion proposal without Republican votes, Majority Leader Chuck Schumer said.

As stocks continued to push higher, Bank of America Corp. strategists came out with a warning about rising bullishness, saying that a sentiment indicator is close to hitting a “sell” signal — a mark last reached shortly before the financial crisis. Meanwhile, Citigroup Inc. is growing concerned with elevated earnings expectations, noting that share prices may be ahead of themselves by about 10%.

© via Bloomberg

These are some key events coming up:

Video: Stocks set to extend Monday’s rally (CNBC)

Stocks set to extend Monday’s rally
What to watch next

The EIA crude oil inventory report is due Wednesday.The Bank of England sets rates on Thursday, and an Indian central bank policy decision comes then too.The U.S. January payrolls report is due Friday, providing a first look at hiring in 2021.

These are the main moves in markets:

Stocks

The S&P 500 climbed 1.7% as of 1:21 p.m. New York time.The Stoxx Europe 600 Index increased 1.3%.The MSCI Asia Pacific Index rose 1.2%.

Currencies

The Bloomberg Dollar Spot Index was little changed.The euro dipped 0.3% to $1.2018.The Japanese yen depreciated 0.2% to 105.10 per dollar.

Bonds

The yield on 10-year Treasuries rose two basis points to 1.10%.Germany’s 10-year yield gained three basis points to -0.49%.Britain’s 10-year yield increased three basis points to 0.349%.

Commodities

West Texas Intermediate crude climbed 2.2% to $54.75 a barrel.Gold slid 1.3% to $1,835.76 an ounce.Silver sank 8.9% to $26.46 per ounce.

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